Phoenix-based Indigo, which is run by former America West Airlines CEO William Franke, has been a shareholder in Spirit since injecting $70 million of equity and debt into the airline in 2006. Indigo along with co-investor Oaktree Capital Group ( OAK) took Spirit public in May 2011 and Indigo until now retained a 17% stake in the Miramar, Fla.-based carrier.

Spirit said in a late Monday, July 29, filing that Indigo was selling its just more than 12 million shares to the public in an offering that would end Indigo's ownership of the airline. As part of the sale Franke, who is non-executive chairman of Spirit, and Indigo representative John Wilson will step down from the Spirit board.

The exit comes just a week after Republic Airways Holdings ( RJET) said it had signed a nonbinding term sheet with an unnamed buyer to sell its Frontier discount subsidiary. Deal sources have said for months that Indigo was the likely buyer of Frontier in a transaction that would involve very little if any cash but allow Republic to off-load debt onto the unit and perhaps keep a minority stake.

Indianapolis-based Republic acquired Frontier out of bankruptcy in 2009 and added Midwest Air Group soon after in an attempt to build a viable discount brand. The company has had Frontier, which competes against titans Southwest Airlines ( LUV) and United Continental Holdings ( UAL) at its Denver base, on the block since November 2011.

Frontier operates 52 Airbus SAS jets with service to 80 destinations in the United States, Costa Rica, the Dominican Republic, Jamaica, and Mexico. Spirit flies 51 Airbus planes to 49 North and South American destinations with a heavy emphasis on connecting U.S. tourists to Caribbean and Latin American vacation spots.

Raymond James & Associates managing director James Parker in a note said that an Indigo deal for Frontier would be a negative for Spirit because Franke and Indigo "have intimate hands-on knowledge of the Spirit business model and its market potential," and could turn Frontier from an also-ran to a viable competitor.

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